EDU v. ELDORADO AREA WATER & SANITATION

• Decision Date: 22 March 2005
• Docket Number: No. 24,276.,24,276.
• Citation: 109 P.3d 305,137 N.M. 217
• Parties: EL DORADO UTILITIES, INC., a New Mexico corporation, Utilities, Inc., an Illinois corporation, Utilities, Inc. of New Mexico, a New Mexico corporation, Sarah Heon, as Personal Representative of the Estate of Larry Heon, Stacy L. Crossingham, Richard G. Kurman, Stephen Mee, and Pamela Mee, Plaintiffs-Appellants, v. The ELDORADO AREA WATER AND SANITATION DISTRICT, Defendant-Appellee.
• Court: Court of Appeals of New Mexico

109 P.3d 305

137 N.M. 217

EL DORADO UTILITIES, INC., a New Mexico corporation, Utilities, Inc., an Illinois corporation, Utilities, Inc. of New Mexico, a New Mexico corporation, Sarah Heon, as Personal Representative of the Estate of Larry Heon, Stacy L. Crossingham, Richard G. Kurman, Stephen Mee, and Pamela Mee, Plaintiffs-Appellants, v. The ELDORADO AREA WATER AND SANITATION DISTRICT, Defendant-Appellee.

No. 24,276.

Court of Appeals of New Mexico.

March 22, 2005.

William E. Sundstrom, Robert C. Brannan, David F. Chester, Rose, Sundstrom & Bentley, LLP, Tallahassee, FL, John P. Salazar, Leslie McCarthy Apodaca, Alan Hall, Edward Ricco, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, for Appellants.

Frank R. Coppler, John L. Appel, Coppler & Mannick, P.C., Santa Fe, NM, for Appellee.

OPINION

BUSTAMANTE, Chief Judge.

{1} This matter came on for hearing on Appellee's Motion for Expedited Remand or, in the Alternative, for Amendment of Opinion Sua Sponte. The motion as presented is denied. However, in light of the motion and Appellant's response to it, the Court has decided to revise the opinion. Therefore, the opinion filed February 18, 2005, is hereby withdrawn and the following substituted.

{2} This appeal involves an ongoing dispute over control of the water utility serving the Eldorado area of Santa Fe County. Plaintiffs challenge the lawfulness of the procedures and tactics used by the Eldorado Area Water and Sanitation District (the District) in its efforts to condemn El Dorado Utilities, Inc. (EDU). Plaintiffs argue that the bond issue undertaken by the District to finance the condemnation did not comply with legal requirements, that the District lacked authority to condemn because it acted abusively and in bad faith, and that the District interfered with EDU's attempt to sell the utility. The district court dismissed the complaint for failure to state a claim upon which relief could be granted, and Plaintiffs appeal. We reverse and remand on the issue of the bond resolution and affirm the dismissal of the other claims.

BACKGROUND

{3} The District is a water and sanitation district created pursuant to the Water and Sanitation District Act, NMSA 1978, §§ 73-21-1 to -54 (1943, as amended through 2003). The District is a quasi-municipal governmental entity governed by a board of three directors elected by the residents of the District. See § 73-21-9(H), (I).

{4} Plaintiff EDU is a public water utility company regulated by the New Mexico Public Regulation Commission (the PRC). EDU owns and operates the water utility system at issue in this case. Plaintiff Utilities, Inc. (UI) is a privately owned water and wastewater company based in Illinois. Utilities, Inc. of New Mexico (UINM) is a wholly owned subsidiary of UI. The individual Plaintiffs are residents and taxpayers of the District. We refer to all plaintiffs collectively as "Plaintiffs," and EDU, UI, and UINM collectively as "utility Plaintiffs."

{5} In September 2001, EDU entered into a purchase agreement with UI/UINM for the sale of the utility. In December 2001, EDU filed a transfer application with the PRC pursuant to NMSA 1978, § 62-6-12 (1989) requesting approval of the sale of the utility to UI, and requesting approval for UINM to own and operate the utility. The District intervened in the PRC proceeding, predicated upon its interest in protecting the "health, safety, prosperity, security and general welfare" of the residents by monitoring the "continuing availability of a safe, dependable water supply at an affordable cost." The District also asserted an interest in the policies regarding line extension to new customers given the limited availability of water resources in the area. The District's motion to intervene in the PRC proceeding was unopposed. The PRC held its proceedings in abeyance pending the outcome of this and other related litigation.

{6} In June and July 2002, the District adopted resolutions scheduling an election to determine whether the District's "voters supported its acquisition of EDU by purchase or condemnation to be financed through general obligation bonds and revenue bonds." The election held in August 2002 approved the issuance of general obligation bonds.

{7} After the election, the District adopted a resolution authorizing the issuance of approximately $7.9 million in general obligation bonds to finance the condemnation of the utility. The resolution authorized the District to levy property taxes as necessary to pay the bonds "notwithstanding any limitations on the rate or amount of such taxes."

{8} Within a month after the bond resolution was adopted, Plaintiffs filed suit requesting an injunction to prevent the issuance of the bonds on the grounds that allowing a levy of taxes without limitation contravenes the tax limitation section of the Community Service District Act, NMSA 1978, § 4-54-1 to -5 (1965, as amended through 1986), rendering the bond resolution invalid. Plaintiffs also requested a declaratory judgment that the District lacks authority to condemn EDU's utility because the District acted in bad faith and abused any condemnation power it possessed. EDU also requested damages caused by the District's interference with EDU's contractual relations with UI/UINM, and by its efforts to reduce the value of EDU's assets.

{9} Plaintiffs alleged that the District's intervention before the PRC was pretextual, caused delay in the transfer of the utility, attempted to defeat the approval, and reduced the value of EDU's real and personal property for the District's sole benefit. Plaintiffs claimed that the District's purpose for intervention was to "defeat the sale on the basis that a condemnation proceeding against UI/UINM would be more costly than one against the current owner, EDU." In addition, Plaintiffs' Second Amended Complaint alleged the following:

18. [B]y intervening and testifying regarding the merits of the proposed condemnation, ... Defendant has stepped outside the bounds of its role as "public guardian" and is using the PRC proceedings as a mechanism for stopping or stalling approval of the purchase and reducing the value of EDU's property, and thereby the potential condemnation price. In fact, Defendant concedes that it is seeking denial of the transfer because it believes that the utility's price would be higher in a condemnation action against UI/UINM than against the current owner.

....

90. Defendant's arguing the merits of the condemnation before the PRC solely for the purpose of thwarting the sale, restricting Utility Plaintiffs' rights to alienate and acquire, and reducing the market value of EDU's assets was, and is, an unlawful use of its governmental power.

91. Defendant's illegal use of the police power to further its proposed condemnation removes Defendant from the position of a neutral arbiter of the public good in that the actions described herein are designed to thwart the sale, restrict Utility Plaintiffs' protected rights to alienate and acquire private property, and lower the value of EDU's assets purely for Defendant's own benefit.

....

101. Defendant's intentional and improper actions before the PRC described above have prevented Utility Plaintiffs from fulfilling their existing contractual relationship.

{10} Subsequent to the filing of this appeal, the District informed the district court it had completed the bond issue and sold the bonds to a private purchaser. With funding in place, the District filed a petition to condemn EDU's utility. The condemnation proceeding is currently pending in the district court. Also, after the appeal was filed, EDU and UI/UINM terminated their purchase agreement.

DISCUSSION

{11} On appeal, Plaintiffs argue that the complaint states a claim upon which relief can be granted based on: (1) the invalidity of the District's bond resolution, (2) the District's improper actions to devalue EDU's utility and interference with the sale of the utility, and (3) the District's lack of authority to condemn EDU's utility. We address each issue in turn, affirm the district court's granting of the motion to dismiss as to claims (2) and (3), and reverse and remand on the bond issue.

Standard of Review

{12} This Court reviews a dismissal of a complaint under Rule 1-012(B)(6) NMRA de novo, as a question of law. Valles v. Silverman, 2004-NMCA-019, ¶ 6, 135 N.M. 91, 84 P.3d 1056. We test the sufficiency of a complaint, assuming that all well-pleaded facts therein are true. Grover v. Stechel, 2002-NMCA-049, ¶ 8, 132 N.M. 140, 45 P.3d 80. "A motion to dismiss for failure to state a claim should be granted only if it appears that plaintiff cannot recover, or be entitled to relief, under any state of facts provable under the complaint." Noriega v. Stahmann Farms, Inc., 113 N.M. 441, 442, 827 P.2d 156, 157 (Ct.App.1992). The assertion that the district court erred in interpreting the statutes governing the District's general obligation bond issue presents a question of law which we also review de novo. See Bajart v. Univ. of N.M., 1999-NMCA-064, ¶ 7, 127 N.M. 311, 980 P.2d 94

.¹

1. The Validity of the District's Bond Resolution

{13} Plaintiffs urge this Court to find that the complaint states a claim for relief as to the validity of the District's bond resolution. The bond resolution states in pertinent part:

The ... Bonds shall constitute the general obligation indebtedness of the District, payable from ad valorem taxes which shall be levied at a rate which shall not exceed $10 per $1000 of net taxable value ... of property within the District ...; except that if the moneys produced from such levies, together with other revenues of the District, are insufficient to pay the annual principal of and interest on the ... Bonds, additional levies may be imposed as may be necessary for such purposes until the ... Bonds are fully paid.

According to Plaintiffs, the bond resolution does not limit the District's power to levy property taxes as...